UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS

International General Certificate of Secondary Education

ECONOMICS 0455/03
Paper 3 Multiple Choice
May/June 2004

1 hour
Additional Materials: Multiple Choice Answer Sheet
Soft clean eraser
Soft pencil (type B or HB is recommended)

READ THESE INSTRUCTIONS FIRST

Write in soft pencil.

Do not use staples, paper clips, highlighters, glue or correction fluid.
Write your name, Centre number and candidate number on the answer sheet in the spaces provided
unless this has been done for you.

There are forty questions on this paper. Answer all questions. For each question there are four possible
answers A, B, C, and D.
Choose the one you consider correct and record your choice in soft pencil on the separate answer sheet.

Read the instructions on the Answer Sheet very carefully.

Each correct answer will score one mark. A mark will not be deducted for a wrong answer.
Any rough working should be done in this booklet.

This document consists of 13 printed pages and 3 blank pages.

IB04 06_0455_03/2RP
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1 Which action is evidence that a country is a planned economy?

A A central bank plans an interest rate change.

B A government plans the allocation of all resources.
C A local authority plans a new library.
D A ministry of finance plans the annual budget.

2 Which statement best explains why drought is an economic problem?

A Drought cannot be controlled.

B Rainfall is unreliable.
C The effects of drought involve the government.
D Water is a scarce good.

3 In 2002 the government of Zimbabwe diverted US$18 million, originally intended to support
private business, to help feed millions of people threatened by famine. Some of the money was
used to import up to 1.8 million tonnes of corn.

What was the opportunity cost to Zimbabwe of this decision?

A the cost of the extra food

B the cost of the 1.8 million tonnes of corn
C the effect on private business
D the US$18 million

4 What might increase the use of money as a medium of exchange?

A an increase in income tax

B an increase in interest rates
C an increase in savings
D an increase in specialisation

5 A state-owned industry is sold to the private sector. The industry consists of a number of very
large factories.

Which is the most likely change in business organisation to result from this?

A from private company to public corporations

B from public company to public corporations
C from public corporation to public companies
D from public corporation to private companies

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6 The following table gives information about four companies.

Which one of these companies is not a multi-national company?

number of countries in number of countries in number of countries in

company which the company has which the company has which the country sells
shareholders factories its products

A 2 1 100
B 1 2 50
C 10 20 20
D 20 5 1

7 In 2002 the trade union representing workers on the London Underground public transport
system called a strike.

Which condition would make a strike least likely to be successful?

A The demand has to be met at a certain time.

B The product or service is regarded as a necessity.
C The union represents a high percentage of the workforce.
D There is a wide range of alternative services.

8 What is a function of a central bank?

A to decide government spending

B to determine all interest rates
C to issue new currency
D to lend to private businesses

9 Which company operates in the primary sector?

company description

A Century City Hong Kong holding company with property and

hotel interests
B Compass East Industries Thai ceiling fan manufacturer

C Delta Gold rapidly expanding Australian gold and platinum

mining company
D First Bangkok City Bank medium-sized commercial Thai bank

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10 The diagram shows the demand for and supply of a product. The original equilibrium is at X.

Which point indicates the new equilibrium position if there is an increase in the price of a close
substitute for the commodity while other things remain the same?

S3
S1
B S2
C
X
A D
price
D2
D1
D3

O quantity

11 The diagram shows the demand for and supply of a firm's product. The original equilibrium is
at X.

The firm pays for a successful advertising campaign.

What is the new equilibrium?

S3 S1

S2
B

A X
price C

D2
D3 D1
O quantity

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12 The charts show the number of railway passenger journeys made and the miles of route open.

760
740
720
number of 700
passenger 680
journeys 660
completed 640
(millions)
620
600
580
560
1990 1991 1992 1993 1994

11 100
11 000
10 900
routes open 10 800
(miles)
10 700
10 600
10 500
10 400
1990 1991 1992 1993 1994

What can be concluded from the charts?

A The overall trend in passenger journeys between 1990 and 1994 was upwards.
B The routes had more people travelling on them in 1994 than in 1992.
C The revenue of the railway decreased between 1990 and 1994.
D There were more trains running in 1994 than in 1992.

13 Which method of advertising would be the most cost-effective way of selling economics textbooks
to schools?

A commercial television
B daily newspapers
C direct mail
D local radio stations

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14 The demand for cocoa beans is price-inelastic.

What is most likely to increase as a result of a decrease in demand for cocoa beans?

A income of cocoa bean producers

B price of cocoa bean products
C production of cocoa beans
D unemployment among cocoa bean farmers

15 There are a fixed number of seats at a concert. Most of the audience would continue to attend
even if the seat prices were increased.

Which diagram represents this situation?

A B C D
S D DS

price D price S price price S

D
O quantity O quantity O quantity O quantity

16 The graph shows the market for unskilled workers in a city. The original equilibrium is at X.

What would be the new equilibrium if there was a migration of workers to the city?

S3

A S1
D

wage X B S2

D2
C
D1
D3
O
quantity

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17 The table shows how three people spend their income.

person X person Y person Z

food, clothing and housing 35 % 50 % 20 %

entertainment and leisure 25 % 20 % 40 %
luxury goods 40 % 30 % 40 %

Place the three people in the most likely order of income, from highest income to lowest income.

A X, Y, Z
B Y, Z, X
C Z, X, Y
D Z, Y, X

18 The table shows the weekly values of certain items for the average person in each group.

Which group saves the most on average?

income ($) spending ($) borrowing ($)

A employed workers 500 400 50

B retired people 150 140 0
C school students 25 30 5
D unemployed 200 300 100

19 ‘Between 1988 and 1998 the real income of the poorest 5 % of the world’s people fell by almost
25 %, while the real income of the richest 5 % increased by 12 %.’

What does this mean?

A Rich and poor people were equally affected.

B The poor lost 25 % of their money.
C The poor lost about twice as much money as the rich gained.
D The poor were relatively worse off in 1998 than 1988.

20 Why are firms making similar products often located near each other?

A Competition may be reduced.

B External economies may be possible.
C Land may be cheaper.
D Overheads may be increased.

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21 The table shows a firm’s average revenue and average cost.

What level of output, A, B, C or D, gives maximum profit?

output (units) average revenue ($) average cost ($)

A 5 10 30
B 10 20 20
C 15 25 15
D 20 30 18

22 The following extract appeared in a UK newspaper.

‘The UK construction firm Wimpey yesterday announced an £85 million deal to buy two
companies in the United States which supply its raw materials.’

Which term best describes Wimpey's actions?

A diversification
B horizontal integration
C vertical integration backwards
D vertical integration forwards

23 The diagram shows the fixed costs, variable costs and total costs of a firm.

Q
costs

O S
output

Which distance represents the firm’s fixed costs?

A PQ B PS C QR D QS

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24 The table shows output and total costs of a firm with three workers.

output total costs ($)

week 1 5 1500
week 2 6 1600
week 3 7 1700
week 4 8 1800

How did output per worker and average cost change over the period?

output per worker average cost

A decrease no change
B increase decrease
C increase no change
D no change increase

25 Which statement describes a progressive tax?

A a tax that increases government income over time

B a tax that places an increasing burden on the poor
C a tax that rises in line with the rate of inflation
D a tax that has a higher rate as income rises

26 What is not a main economic government objective?

A a balance of payments deficit

B economic growth
C full employment
D price stability

27 When is the budget described as balanced?

A when direct taxes and indirect taxes are equal

B when exports and imports are equal
C when government spending and government revenue are equal
D when the demand for money and the supply of money are equal

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28 What would be most likely to encourage saving?

A a rise in the exchange rate

B a rise in the goods and services tax rate
C a rise in the income tax rate
D a rise in the interest rate

29 The diagram shows the annual rate of inflation for a country between 2000 and 2003.

10

6
rate of
inflation %
4

0
2000 2001 2002 2003
year

Which statement is true of the period 2000 to 2003?

A The cost of living fell.

B The price level rose.
C The retail price index fell.
D The value of money rose.

30 Which of the following would cause a favourable change in the UK trade in services (invisible)
account?

A A Malaysian company increases its exports to the UK.

B A Japanese company invests in a subsidiary in the UK.
C A large UK company increases its exports of goods.
D A UK company wins a contract to transport South African exports.

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31 The table shows units of output, value of output and number of people employed in an industry
over three years.

output output value number employed

(units, millions) ($ millions) (000)
year 1 10 10 5
year 2 21 25 7
year 3 32 40 8

What could be concluded from the table above?

A Inflation has increased.

B Productivity has increased.
C Profit has increased.
D Working population has increased.

32 The graph shows annual changes in the prices of goods and services in a country between 1996
and 2001.

5
services
4
3
annual
2
% change
1
goods
0
_1
1996 1997 1998 1999 2000 2001
year

What can be concluded from the graph?

A Goods were cheaper in 2001 than 1996.

B Goods were cheaper than services from 1997.
C The price of goods fell at the start of 2000.
D The price of services fell in 2000.

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33 On a holiday island criminals have frightened away tourists. To give tourists confidence the
government has increased the number of police.

What is likely to happen as a result of such action by the government?

A Overseas earnings fall.

B Public expenditure increases.
C Taxes fall.
D Unemployment increases.

34 Why are weights used in the construction of a price index?

A Some prices tend to change according to the season.

B Some prices change more than others.
C Some goods are more expensive than others.
D Some goods take a greater proportion of total spending than others.

35 Botswana has achieved high rates of economic growth.

What is most likely to have fallen as a result of this economic growth?

A employment
B income per head
C infant mortality rate
D literacy rates

36 Other things being equal, what will cause a population both to increase and to age?

A a fall in the birth rate

B a rise in both the birth rate and the death rate
C a rise in the death rate and a fall in the birth rate
D a fall in the death rate

37 What is usually found in a developing country?

A Primary products are important exports.

B The agricultural industry has high productivity.
C There is a high level of investment in education.
D There is a low birth rate.

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38 What is an effect of trade protection?

A It encourages home industries to be more efficient.

B It increases the demand for home produced goods.
C It reduces the price of home produced goods.
D It reduces the price of imports.

39 External benefits are

A private benefits minus private costs.

B private benefits plus social benefits.
C social benefits minus private benefits.
D social benefits plus social costs.

40 What encourages international specialisation?

A diseconomies of scale
B foreign exchange
C free trade
D quotas

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University of Cambridge International Examinations is part of the University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department
of the University of Cambridge.

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